Walgreen Co. ( WAG - Analyst Report ) is scheduled to release its fourth quarter and fiscal 2012 earnings on Friday, September 28, 2012, before the market opens. The Zacks Consensus Estimates forecast earnings of 56 cents per share in the quarter and $2.59 per share for fiscal 2012. This represents a year-over-year decline of 2.63% and 1.91%, respectively.

Analyzing past trends, Walgreen has exceeded estimates in two of the last four quarters and remained in line in one. The company has an average negative surprise of 0.34% over the trailing four quarters.

The company has already reported sales for the fourth quarter and fiscal 2012, which were at $17.08 billion, down 4.9% year over year and $71.64 billion, down 0.8%, respectively. Walgreen’s sales were adversely affected by the contract termination with Express Scripts ( ESRX - Analyst Report ) in January 2012.

Comparable store sales for the quarter dropped 8.7% along with a 1.3% decline in front-end comparable store sales. Moreover, prescriptions filled at comparable stores decreased 8% during the quarter while comparable pharmacy sales dropped 12.6%. Besides, comparable store sales for fiscal 2012 decreased 3.6%.

Previous Quarter Highlights

Walgreen reported a 4.6% year-over-year drop in earnings to 62 cents per share in the third quarter of fiscal 2012, in line with the Zacks Consensus Estimate.

Total sales also declined 3.4% to gross $17.8 billion in the reported quarter, marginally missing the Zacks Consensus Estimate of $17.9 billion. Front-endcomparable store sales (those open for more than a year) during the quarter decreased 2.6%.

Along with earnings, Walgreen announced its partnership with Alliance Boots to become the world’s first pharmacy driven health and wellbeing retail with more than 11,000 stores in 12 countries.

Agreement of analysts

Estimate revision trends depict a negative bias toward the company’s earnings in both the fourth quarter and fiscal 2012. Over the last 7 days, out of the 16 estimates, five were revised lower with only one positive revision for the quarter. For the full year, bearish sentiments prevail with 6 downward revisions accompanied by only one revision in the opposite direction.

The bearish sentiments reflect the disappointing performance of the company over the recent past. It also exhibits the concerns regarding the company’s performance in the upcoming quarters. Despite the reconciliation with Express Scripts, Walgreen’s ability to win-back its previous customers remains a concern. Per the new agreement, Walgreen will start filling prescriptions from Express Scripts’ customers from September 15, 2012. There is also a lack of clear visibility with respect to the realization of synergies with Alliance Boots.

Magnitude

The Zacks Consensus Estimate of 56 cents for the fourth quarter dropped by a penny over the last 60 days and by a couple of cents over the last 90 days. It, however, remained unchanged over the last month. For fiscal 2012, estimates have moved down by a penny, over the past week and month, to $2.59 per share.

Our Recommendation

In addition to several other headwinds, over the past few quarters, Walgreen remained negatively affected by high unemployment levels and lower discretionary spending. However, the company has maintained its shopping spree. Following the strategic alliance with Alliance Boots, this leading retail pharmacy chain acquired a mid-South US-based regional drugstore chain from Stephen L. LaFrance Holdings Inc. and members of the LaFrance family for $438 million. We expect these new ventures to boost growth going forward. Nevertheless, it remains to be seen if these measures can neutralize the headwinds related to the Express Scripts contract.

Moreover, with resumption of the contract with Express Scripts, sales are expected to improve, though winning back clients remains crucial. As a result, to stimulate customers’ demand amidst a challenging macroeconomic scenario, the company also launched a customer loyalty program.

We have a Neutral recommendation on Walgreen over the long term. The stock retains a Zacks #3 Rank (short-term Hold rating).